Labour Rate Variance
Accounting glossary · Understand, connect, apply
The labour rate variance measures the cost effect of paying a rate per labour hour different from the standard rate, applied to the actual hours on the stated basis.
Example
Workers spend 180 hours at an actual rate of 22 per hour against a standard rate of 20. The rate variance is 180 × 2 = 360 unfavourable.
Formula and assumptions
Rate variance = actual hours × (actual rate − standard rate); positive means unfavourable
Remember the difference
A higher rate may reflect a different skill mix or authorised overtime. State how idle time and premiums are treated so that rate and efficiency calculations can be reconciled.
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Published 4 November 2026. Prepared with AI assistance; examples are fictional and simplified for learning.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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